Federalism

In my posts on taxes and spending, I assumed that there was a unitary government that collected all taxes and spent all public money. Obviously, the US doesn’t work that way, nor should it; there’s a reason the geographically largest and most populous countries are federal.

In fact, in certain respects the US should become more federal than it is now, especially when it comes to spending. Devolving things like civil rights or basic government regulations isn’t wise, but spending and certain economic regulations are something that can be easily left to the states. Done right, it encourages experimentation, which makes it easier for the public to find the best-working solutions to problems.

The main problem with federal-state relationships now is that too many things are jointly funded or regulated by the federal government and the states. This on the one hand creates many incongruous systems, which are unnecessarily complicated, and on the other restrains states from experimenting.

In Canada, Tommy Douglas could easily create a single-payer health care system in Saskatchewan, because the federal government left health care to the provinces. In the US, states don’t go single-payer even though it would save money, because the federal government isn’t going to cut taxes by 4% on every state that pays in full for insurance covering all people who’d be covered under Medicare and Medicaid.

In terms of spending, recall that the biggest shares of the budget should go to welfare (7% including Social Security), health care (6%), education (6%), and defense (2%), where defense is obviously always purely federal.

Health care could easily be devolved; Canada’s health care system’s problems stem from overzealousness rather than from decentralization. The health regulations that need to be national—patents, price caps on prescription drugs, licensing requirements—have relatively little to do with health insurance, which is the main spending issue.

Education is far more problematic. Canada, which leaves education to the provinces, has the same problems that stem from the lack of national standards as the US. I don’t know that it has major spending equality issues, but if the federal government tells schools what to teach, which it should, it should also provide the bulk of the funding. I say “The bulk” because it makes sense for small projects to be funded more locally, and because several important costs are very dependent on the local cost of living.

Although experimentation is important, with education the best way to do it is not on the state level, but on the district level. This doesn’t require letting districts control spending or curricula, which will only usher in a system as screwed up as the one American children are subjected to now. Instead, it requires that the federal government let a few districts experiment with new methods and evaluate their success by some national yardstick. While health care experimentation works best on the state level, educational experimentation works best on the school level.

Welfare is slightly less problematic than education. It makes a lot of sense for the federal government to provide everyone with a pension, disability and survivors’ benefits, unemployment insurance, and a minimum income at the national poverty line. However, other things can be left to the states, like a minimum income at a local poverty line. What sustains a person in Alabama is not what sustains a person in New York.

There, experimentation is a recipe for disaster. Welfare reform was all about letting states experiment with welfare. But the pressure from both above and below to shorten welfare rolls has caused states to saddle single men with paying child support to mothers they impregnated in a one night stand and single women with having to work 40-hour weeks often tens of miles from their homes without subsidizing daycare.

When it comes to business regulations, different state standards tend to cause more problems than they solve. The exceptions are things that are simple to understand, like minimum wages and emissions standards. A good rule of thumb is that if the regulation can’t be summarized in two hundred words, it should be national.

I’d go even further and forbid localities to give businesses tax breaks or subsidies. This isn’t an especially novel thing; many free trade agreements have clauses about subsidies. In the EU, member states aren’t allowed to engage in any kind of farm aid outside the CAP. In the US, tax breaks to businesses have allowed Wal-Mart to extort localities into giving it free land or buildings; it’s often the case that only a big federal government can rein in big business.

However, local environmental decisions are still best made locally. While regulations about global issues like climate change and air pollution should be made globally, regulations about land use or local pollution are best decided locally. This is partly political—global decisions make people pissed at environmentalists—but there’s also an “If they vote to poison their own water supply, it’s their problem” streak there.

The real complication when it comes to environmental regulations is what to do with local issues that cross state lines. When they cross many a national solution tends to be best, but when they’re still regional, the best thing to do is to let the relevant localities form a bioregional commission, instituted along the lines of the Great Lakes Commission.

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This entry was posted on Thursday, January 11th, 2007 at 11:35 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed.
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